Sept. 25 (Bloomberg) -- Venezuelan President Hugo Chavez will likely sell dollar bonds for the first time in more than a year after unveiling a $5.7 billion local debt offering yesterday, said Goldman Sachs Group Inc. and RBS Securities Inc.

The dollar bond sale may total about $4 billion, according to RBS analyst Siobhan Morden. The government announced yesterday in the Official Gazette plans to sell as much as 12.15 billion bolivars ($5.7 billion) of bonds by year-end, an offering that could swell the supply of debt in the local- currency market by more than 25 percent.

Chavez needs to offer dollar securities to offset a 55 percent tumble in oil, the source of half of the country’s fiscal revenue, and shore up the bolivar in the unregulated market, said Alberto Ramos, an economist with Goldman Sachs. The bolivar trades 62 percent weaker than the official exchange in the parallel market, where Venezuelans buy dollars when they can’t get government authorization to purchase U.S. currency.

“Certainly the government needs to issue more debt,” Ramos said in a telephone interview from New York. “It fulfills two objectives -- to raise more money and to satisfy this very large pent-up demand for dollars.”

Chavez, who urged President Barack Obama at the United Nations yesterday to make an “about-face” in U.S. policy in Latin America, is seeking to bolster the bolivar to lower the nation’s 29 percent inflation rate, the highest among 78 countries tracked by Bloomberg. Inflation became Venezuelans’ second-biggest concern after crime in March, said Luis Vicente Leon, director of Caracas-based polling firm Datanalisis.

October Sale

Venezuela, the biggest oil producer in South America, could sell the dollar bonds by early October, said Asdrubal Oliveros, an economist with Caracas-based Ecoanalitica. He said that government officials have indicated to him that the sale could total $4 billion and be split up into two securities -- 5-year and 10-year notes.

A spokesman at the central bank didn’t return a telephone call seeking comment. A spokesman at the Finance Ministry declined to comment.

The dollar bond sale “remains on track, absolutely,” Oliveros said. “They’re creating these bonds not so that people can speculate in the parallel market but so that they can meet their needs for foreign currency.”

Chavez, who calls his economic program “21st Century Socialism,” last sold dollar-denominated bonds in April 2008, when he issued $4 billion of 15- and 20- year securities in the domestic market.

‘Heavy Supply’

In that sale and in a $3 billion offering by state oil company Petroleos de Venezuela SA in June, the government allowed local investors to buy the securities with bolivars and re-sell them in international markets for dollars. That mechanism provided dollars to people and companies unable to obtain U.S. currency from the government at the official exchange rate.

As Venezuelans sell the bonds in international markets, the supply of securities will swell, which could damp a rally in the country’s debt, said Morden. A $4 billion dollar bond sale would total about 16 percent of the government’s outstanding dollar bonds.

“That’s quite a bit of heavy supply,” said Morden. She predicts Venezuelans will sell those bonds into international markets over a period of four to six weeks after the offering. “It tends to be more of a trickling of supply than a flooding. It’s going to take a while to digest.”

‘Confusion Reigns’

Miguel Octavio, head of research at BBO Financial Services Inc. in Caracas, said he’s unsure if the government still plans to sell dollar bonds after yesterday’s announcement of a bolivar debt issue. Comments by Chavez last week that the government was working on an offering sparked the speculation of a dollar bond sale. Chavez may have been referring to yesterday’s bolivar debt plan, Octavio said.

“Confusion reigns,” he said.

Venezuela’s dollar bonds have returned 74 percent this year, the most in any year since JPMorgan Chase & Co. began tracking the data in 1994, after a 39 percent tumble in 2008.

The yield premium investors demand to own Venezuelan bonds rather than U.S. Treasuries dropped to a one-year low of 8.6 percentage points this week from 18.48 points in mid-February as the easing of the global credit crisis ended the rout in oil. The yield gap was 8.85 points today.

Reserves Drop

Chavez, 55, said last week the government is also stepping up dollar sales at the official exchange rate after last year’s plunge in oil, which accounts for 93 percent of Venezuelan exports, forced officials to pare dollar authorizations by 45 percent in the first half of the year. The pickup in sales sparked a 24 percent rebound in the bolivar to 5.63 per dollar in the parallel market from a five-month low of 7.05 on Aug. 4.

The 5.63-per dollar level is still more than 3 bolivars weaker than the official 2.15-per dollar exchange rate Chavez enforces as part of currency controls he imposed in 2003. Finance Minister Ali Rodriguez called the bolivar “overvalued” in a speech this month though he said the government has no plans to devalue the currency.

Rodriguez said in April that food and medicine importers would get priority in buying dollars at the official rate as he rationed back sales to preserve reserves. The plunge in oil from last year’s record high of $147.27 a barrel has pushed Venezuela’s foreign reserves down 23 percent this year to $32.7 billion, the biggest drop in Latin America.

‘Extremely Overvalued’

London-based Cadbury Plc, the maker of Trident gum and Crunchie chocolate bars, said in June that it had begun buying U.S. currency in the parallel market after the government stopped authorizing its purchases at the official rate. General Motors Co.’s Venezuelan subsidiary said in September it shuttered a passenger vehicle plant for three months because it couldn’t get dollars from the government.

The economy shrank 2.4 percent in the April-to-June period from a year ago, the first quarterly contraction since 2003.

Pedro Palma, an economics professor at the IESA business school in Caracas, said the slump is in part the result of the “extremely overvalued” bolivar, which is eroding local companies’ ability to match the prices on foreign-made products.

“The competitiveness of the domestic private sector has been eliminated,” said Palma, who has been tracking the Venezuelan economy for three decades. “The dollar at a rate of 2.15 bolivars just can’t be.”

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.netCatarina Saraiva in New York at asaraiva5@bloomberg.net

Last Updated: September 25, 2009 16:47 EDT